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Socio-Political Instability and Growth Dynamics

Author

Listed:
  • Manoel Bittencourt

    (School of Economic and Business Sciences, University of the Witwatersrand, Johannesburg)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, Pretoria, South Africa)

  • Philton Makena

    (Department of Economics, University of Pretoria, Pretoria, South Africa)

  • Lardo Stander

    (Department of Economics, University of Pretoria, Pretoria, South Africa)

Abstract

Since 2006, almost 60 percent of global protest events have been exclusively driven by economic injustice. Standard determinants of socio-political instability reported in the literature, do not fully explain the effect of monetary and fiscal policy decisions on the intended target audience of those policy outcomes. We develop an overlapping generation’s monetary endogenous growth model characterized by socio-political instability, to analyse growth dynamics and specifically, monetary policy outcomes in the presence of this augmentation. Socio-political instability is specified as the fraction of output being lost due to strikes, riots and protests and is positively related to inflation. Interesting, two distinct growth dynamics emerge, one convergent and the other divergent, if socio-political instability is a function of inflation. And by using a sample of 170 countries during the 1980 – 2012 period, and allowing for time and fixed effects, the results indicate that inflation correlates positively with socio-political instability. Policy makers should be cognisant that it is crucial to maintain long-run price stability, as failure to do so may result in high inflation emanating from excessive money supply growth, and high (er) socio-political instability, and ultimately, the economy being on a divergent balanced growth path.

Suggested Citation

  • Manoel Bittencourt & Rangan Gupta & Philton Makena & Lardo Stander, 2018. "Socio-Political Instability and Growth Dynamics," Working Papers 201855, University of Pretoria, Department of Economics.
  • Handle: RePEc:pre:wpaper:201855
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    References listed on IDEAS

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    More about this item

    Keywords

    Socio-political instability; inflation; endogenous growth; dynamics;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O42 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models
    • P44 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - National Income, Product, and Expenditure; Money; Inflation

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